TORONTO, Jan. 15, 2014 /CNW/ - Opaque budgeting methods and financial
reports in Canada's major cities baffle councilors and taxpayers,
according to a report released today by the C.D. Howe Institute.

In "Baffling Budgets: The Need for Clearer and More Comprehensive
Financial Reporting by Canada's Municipalities," authors Benjamin
Dachis and William B.P. Robson, say fixing these flaws is a critical
step toward better accountability to voters for municipal spending and
taxation.

The report reveals leaders and laggards among Canada's major cities when
it comes to transparent budgeting that allows comparison between budget
promises and actual spending over the ensuing year. "City budgets are
needlessly confusing because the headline totals for revenue and
spending are usually not comparable to those in the year-end financial
reports," commented William Robson. "Judging whether a city over- or
under-shot its budget targets, and by how much - which should be a
simple matter of comparing headline numbers - is not possible for a
typical councillor, taxpayer or citizen."

The authors look at the last 10 years of municipal budgets and financial
reports for cities from coast to coast and calculate the gaps between
the planned spending changes and what cities presented at the end of
the year. Among Canada's largest cities, Toronto and Waterloo Region
rank best, with gaps of less than 5 percent, but the worst - Brampton,
Halton Region, and Vaughan - have gaps of around 20 percent, and cities
generally are far worse at hitting their targets than Canada's federal
and provincial governments. (See report for complete rankings.)

While most of Canada's federal and provincial governments now use the
same accounting methods in preparing their budgets and their financial
reports, municipalities typically do not, note the authors. "Most of
Canada's senior governments use modern "accrual" accounting that
matches the costs of long-lived assets such as buildings and
infrastructure to the period they deliver their services," said
Benjamin Dachis. "Most municipal budgets, by contrast, show that year's
cash outlays on capital, exaggerating the up-front cost of major
projects, and understating their later expenses."

Dachis and Robson argue that inappropriate budgetary treatment of
capital assets and accounting differences between budgets and financial
reports is not just a concern for accountants. They point out that the
financial statements of Canada's major cities show a cumulative surplus
over the past five years of $29 billion - Calgary, Saskatoon, Halton
Region, Vaughan and Markham have run the largest surpluses compared to
their revenues - and that the cities with the biggest gaps between
budget targets and end-of-year spending have tended to have larger
surpluses. "This record suggests that cities have tended to over-charge
up-front for capital projects." noted Robson. "And thus not matched the
costs of these projects to the taxpayers who will enjoy their benefits
over time."

The authors note that changes in provincial legislation could foster
better municipal financial reporting, but also that cities can take the
initiative to present more meaningful numbers on their own. "Both
provinces and municipalities should take steps to improve the fiscal
accountability of municipalities." said Dachis.

The C. D. Howe Institute is an independent not-for-profit research
institute whose mission is to raise living standards by fostering
economically sound public policies. It is Canada's trusted source of
essential policy intelligence, distinguished by research that is
nonpartisan, evidence-based and subject to definitive expert review. It
is considered by many to be Canada's most influential think tank.